China is in a terrible spot.
The United States has a President unwilling to stand back and allow it to continue having huge advantages in trade between the two countries. Therefore, China is faced with the choice of either agreeing to significantly more equitable trade agreements or – since it enjoys a huge trade imbalance in its favor – getting hammered if there is a trade war.
Moreover, if the United States is successful in this effort to at least somewhat even the playing field, it stands to reason that other countries, also in trade imbalance situations with China, might get the same idea.
And then there is the issue of “saving face”/not looking as if Xi allowed Donald Trump to beat China into submission.
So here is China’s latest gambit, excerpted from Jason Rogers, David Stringer and Martin Ritchie’s article for Bloomberg News, via yahoo.com:
Beijing is gearing up to use its dominance of rare earths to hit back in its deepening trade war with Washington.
A flurry of Chinese media reports on Wednesday, including an editorial in the flagship newspaper of the Communist Party, raised the prospect of Beijing cutting exports of the commodities that are critical in defense, energy, electronics and automobile sectors. The world’s biggest producer, China supplies about 80% of U.S. imports of rare earths, which are used in a host of applications from smartphones to electric vehicles and wind turbines.
The threat to weaponize strategic materials ratchets up the tension between the world’s two biggest economies before an expected meeting between Presidents Xi Jinping and Donald Trump at the G-20 meeting next month. It shows how China is weighing its options after the U.S. blacklisted Huawei Technologies Co., cutting off the supply of American components it needs to make its smartphones and networking gear.
This is certainly a highly aggressive move by the Chinese government, one that might make it clear Xi Jinping look strong in standing up to Mr. Trump.
But is it a start move? Maybe…but, then again, maybe not.
Here’s another part of the article…
Rare earths aren’t particularly rare. Cerium, the most abundant, is more common in the Earth’s crust than copper. All other rare-earth elements, besides promethium, can be found more widely than silver, gold, or platinum, according to the U.S. Geological Survey. However, concentrated and economic deposits are scarce, and production is dominated by a handful of countries. China is the biggest by far, accounting for almost 70% of global production and 40% of the world’s reserves, USGS data show.
…and this, from Jeremy Berke’s article for sciencealert.com:
Earlier this year, researchers found a deposit of rare-earth minerals off the coast of Japan that could supply the world for centuries, according to a study.
The study, published in the journal Nature in April 2018, says the deposit contains 16 million tons of the valuable metals.
What does this tell us? It tells us that there is plenty of rare earth materials out there, that China has largely overtaken the market by default.
So what happens if President Trump tells Xi Jinping to keep his rare earth, we’ll get it from our ally, Japan, and other sources? What happens to China’s rare earth industry then?
In other words, this may not be a smart move at all, because it has the potential to backfire big-time on China.
…maybe Xi understands this, and his idea is to now cut the best deal he can (which means stop losing his shirt because of the trade imbalance), and tell the Chinese people, via his controlled press, that the rare earth threat made the United States give China better terms. The result? We get the better deal, China saves face.
I doubt it will take very long for this to play out. Let’s keep an eye on how it develops to see where it goes. Or, more exactly, who blinks, how soon, and how hard.